Federal Circuit Clarifies That Standing in False Patent Marking Case Extends to Any Person as the Government's Assignee

In an order issued August 31, 2010, the Federal Circuit has reinforced that any person has standing to bring a claim for false patent marking under 35 U.S.C. § 292. In Stauffer v. Brooks Brothers, Inc., Case Nos. 2009-1428, 2009-1430, 2009-1453, --- F.3d ----, 2010 WL 3397419, (Fed. Cir. Aug. 31, 2010), the Federal Circuit Panel, comprised of Chief Judge Rader and Circuit Judges Lourie and Moore, reversed and remanded a decision from the United States District Court for the Southern District of New York dismissing Stauffer's qui tam action. Id. at *1. The panel also reversed the lower court's denial of the government's motion to intervene. Id.

Raymond E. Stauffer, a patent attorney, had brought the action alleging that Brooks Brothers' Adjustolox bow ties were "falsely" marked with patents that had expired in the 1950s, claiming standing pursuant to Section 292(b) which provides that "[A]ny person may sue for the penalty, in which event one-half shall go to the person suing and the other to the use of the United States." Id. (emphasis added). Brooks Brothers moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1), claiming that Stauffer lacked standing, and pursuant to Rule 12(b)(6), claiming that Stauffer had failed to allege an intent to deceive the public with sufficient specificity. Judge Stein of the Southern District had found that Stauffer lacked standing, explaining that Stauffer, as a qui tam plaintiff or "relator" standing in the government's stead, had to show that the United States had suffered an injury in fact, and Stauffer's general claims that Brooks Brothers' conduct wrongfully quelled competition did not suffice. Stauffer v. Brooks Brothers, Inc., 615 F.Supp.2d 248, 251 (S.D.N.Y 2009). Judge Stein further explained that it would not be sufficient for Stauffer to show that he himself was injured, rather, the injury had to be to the public. Id. at 255 n. 7.

Reviewing the case de novo, the panel reversed the lower court finding that Stauffer indeed had standing as the government's assignee. The panel explained that as a qui tam provision, Section 292(b) "authorizes someone to pursue an action on behalf of the government as well as himself." Stauffer, 2010 WL 3397419 at *3 (citing Stauffer, 615 F. Supp.2d at 253). Thus as a "relator," Stauffer need not suffer injury to himself, rather he need only to assert that Brooks Brothers' conduct has caused the United States to suffer an injury in fact. Stauffer, 2010 WL 3397419 at *4. The panel agreed with the government that Congress' enactment of Section 292 defined an injury in fact and thus a violation of that Section "inherently constitutes an injury to the United States." Id. The panel also clarified that the District Court had incorrectly read Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765 (2000) to determine that standing could only be assigned to Stauffer if the injury to the U.S. was proprietary, as opposed to sovereign. The panel explained that whether the injury to the United States is deemed to be proprietary or sovereign is of no consequence, stating that "[t]he Supreme Court considered both types of injuries [in Vermont Agency] and found them collectively to be sufficient to confer standing on the government and therefore on the relator." Id. (referencing Vermont Agency, 529 U.S. at 774).

Significantly, upon remand, the panel specifically advised the district court to consider Brooks Brothers' Rule 12(b)(6) motion to dismiss for Stauffer's purported failure to properly allege an intent to deceive the public with sufficient specificity, which the panel called "a critical element of a section 292 claim." Id. at 6.

The panel also reviewed the lower court's denial of the government's motion to intervene pursuant to Rule 24 under Second Circuit law finding that the district court had indeed erred. Id. at 7. Pursuant to Rule 24(a)(2), the panel found that the government had an interest in enforcing its laws and in one half of the fine permitted under Section 292(a). Id. Because the government could otherwise be bound by an adverse judgment based on res judicata "in this particular case" should Stauffer fail to adequately represent the United States' interests or even lose the case altogether, "the United States' ability to protect its interest … would be impaired by disposing of this action without the government's intervention." Id.

A significant number of false patent marking cases have been filed since the Federal Circuit's ruling and remand in The Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295, 1304 (Fed. Cir. 2009), in which the court held that the penalty under § 292 must be assessed on a per article basis (rather than penalizing the defendant for one offense) up to $500 per falsely marked article. Legislation has been introduced seeking to limit standing for false marking claims to those "who ha[ve] suffered a competitive injury." Unless and until that legislation is passed, the Federal Circuit has made it clear in this decision that truly any person has standing to sue for false patent marking claims as the government's assignee. With this ruling, it can be expected that Patent Marking Trolls (i.e., entities created for the sole purpose of making false patent marking claims) will undoubtedly assert that Stauffer resolves any issue with respect to their standing and an injury in fact to the United States is inherent in the violation itself.